Pier 1 2009 Annual Report Download - page 28

Another opportunity for the Company to reduce expenses is in its real estate costs. The Company
closed 26 stores in fiscal 2009 and ended the year with 1,092 Pier 1 Imports stores in North America.
An outside firm has been hired to assist the Company in negotiating with landlords to achieve
reductions in rental rates across its store portfolio. In certain cases, if appropriate rental reductions
cannot be reached, the Company may elect to close those locations. Currently, the Company expects to
close no more than 80 locations in connection with these negotiation efforts.
Selling, general and administrative expenses in fiscal 2009 were lower in dollars than the prior
year, primarily as a result of the significant cost savings efforts throughout the year. The Company also
made significant changes to its marketing strategy during fiscal 2009. The timing of marketing
expenditures was shifted in order to utilize more of the budget in the all important holiday selling
period. Most notably, the Company resumed national television advertising on national cable networks
during the holiday selling period. The Company will continue to seek out ways to efficiently use its
marketing budget through multiple media outlets including television, the Internet, direct mail, and
print media.
The Company ended the year with total cash of $155.8 million and net availability under its credit
line of $84.9 million, for a total liquidity position of $240.7 million. During fiscal 2009, the Company
was able to accomplish two feats in particular which strengthened its liquidity position. In June 2008,
the Company sold its corporate headquarters to Chesapeake Energy Company for net proceeds of
approximately $102.4 million. The sale had a positive impact on both the balance sheet and the income
statement as the cost of leasing space was lower than the carrying costs of the building. In addition, the
Company was able to preserve working capital through the significant reduction of its inventory. The
Company reduced its inventory position from $411.7 million at the beginning of the year to
$316.3 million by year end. The Company accomplished this by reacting quickly to the slowdown in
sales, reducing purchases and clearing out excess inventory, especially in the distribution centers. The
Company also made changes to its procurement process. The changes included buying inventory much
closer to the needed in-store date, and buying smaller initial quantities. This reduction in inventory has
the added benefit of allowing the reduction of distribution center space requirements.
Further improvements to the Company’s balance sheet were accomplished subsequent to fiscal
2009 year end. On March 20, 2009, a foreign subsidiary of the Company entered into private
agreements purchasing $78.9 million of the Company’s outstanding 6.375% convertible senior notes due
2036. The notes were acquired at a purchase price of $27.4 million, including accrued interest. As a
result of this transaction, the Company reduced its outstanding convertible debt to $86.1 million on a
consolidated basis. The foreign subsidiary presently intends to hold the convertible notes until maturity.
In connection with this transaction, the Company expects to recognize a gain of approximately
$49.0 million during the first quarter of fiscal 2010.
While the recession has slowed the Company’s turnaround speed and increased its timeline, the
Company’s overall strategy remains the same. Until management sees signs of an upturn, however, it
will buy conservatively, manage inventories, and continue to make the Company’s merchandise offering
more compelling and improve the in-store experience. In addition, the Company will continue to focus
on its ongoing mission to maximize its revenues, while continuing to seek out ways to reduce its cost
base and preserve its liquidity.
The following discussion and analysis of financial condition, results of operations, liquidity and
capital resources relates to continuing operations, unless otherwise stated, and should be read in
conjunction with the accompanying audited Consolidated Financial Statements and notes thereto which
can be found in Item 8 of this report. Fiscal 2009 and fiscal 2008 were 52-week years while fiscal 2007
was a 53-week year.
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